Deficit gives economy the juice it needs

September 15, 2010 | John Burbank

From the Everett Herald:

John Burbank, Executive Director

What’s all this talk about the deficit? Dino Rossi says “Congress is putting our economic future in jeopardy by continuing to spend money they don’t have,” and that “it’s very clear we’re on a fiscal edge.” We are on a fiscal edge, all right — one created by Wall Street.

In this great recession, our jobs, our kids’ education and our quality of life are all eroding away. The one back-stop keeping the economy from plunging into the next great depression is increased spending by the federal government. We don’t need cuts, Dino, we need public investments.

Let’s take the deficit for what it is: jobs, education, highways, health care, buses, university research, defense and aerospace. Rossi is objecting to stimulus spending that has created 1,700 jobs in Snohomish County. This includes projects ranging from the Arlington wastewater treatment plant upgrade and expansion, to replacing water mains in Startup, providing meals for seniors, hiring teachers and funding special education, paying correctional facility officers, and improving I-5 north of Marysville. That is not peanuts.

The federal deficit’s share of the gross domestic product (GDP) is 10 percent. That’s about one-third of what the proportional size of federal deficit was in 1943. (Share of GDP is the correct measurement to use, as an economic stimulus must be proportional to size of the economy. Sort of like making sure you have the right-sized wrench to loosen the wheel nuts when you change a tire.)

If the federal deficit in 1943 was the same proportionate size as the current federal deficit, we would very likely have lost World War II. We simply would not have put enough economic juice into the war machine to defeat fascism. And certainly we would have long-term and high unemployment, stretching into decades.

Unemployment during the Great Depression didn’t go away after one year or five years. In 1932 unemployment in our country was 24 percent, in 1935 it was 20 percent, in 1940 it was 15 percent. Then Pearl Harbor was attacked, we entered World War II, the federal deficit skyrocketed, and by 1944 unemployment was down to 1 percent. For the next quarter-century it held at between 3 percent and 5 percent.

How did the federal government help out in the Great Depression? We know about the Works Progress Administration and the Civilian Conservation Corps, employment programs that put people to work building schools, water systems, dams, roads, trails and sidewalks.

But these efforts were not enough. So while between a sixth and a quarter of workers languished without work for a decade, the federal government still did not spend enough money to make up for the pull-back by the private sector. The federal deficit was 4 percent of GDP in 1932, 4 percent in 1935, and 3 percent in 1940.

What did put almost all Americans back to work in the 1940s was the massive increase in federal deficits. To defeat fascism, the federal government spent money, as Rossi says, “they don’t have.” The deficit reached 14 percent in 1942, 30 percent in 1943, 23 percent in 1944, and 22 percent in 1945. This spending also resulted in the investments and infrastructure that kept Americans at work for the next quarter century. It enabled a post-war full employment private sector economy, and, as a result, post-war federal deficits practically disappeared.

Now we are in the Great Recession, with official unemployment hovering between 9 percent and 10 percent. Corporate profit margins were 36 percent in the first quarter of this year, a record. But these corporations are not hiring, at least in our country. So when we grumble about the federal deficit being too high, we are just digging our recession deeper.

What we need to do instead is launch entire new public initiatives for high-speed transit, new schools, an expanded Everett Community College that offers four-year degrees, replacement of outdated and worn-out water and sewer systems, and energy retrofits for public and private buildings. We need to double down on the stimulus to get us out of the economic doldrums.

Only the federal government can provide the juice we need. It may not be World War II, but it is our lives, our families, our future, and ultimately, our private sector economy. That’s the road to recovery.

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Posted in Column, Education, Higher Education, State Economy

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